The Singapore Business Review (SBR) issue 50 (Nov 12) covered an article about deal sites. With the rise of Groupon, many copycats had sprung around the world and Singapore too, had joined in the race. Beeconomic.com was the success story. Karl Chong started the the site which was eventually bought over by Groupon. Karl remained as the CEO of Groupon Singapore. Most of us would have only paid attention to this fairy tale and wished we were in Karl’s shoes. We are cultprits of survivorship bias – we did not see how many had failed for a successful Karl. I am heartened to see SBR report on the failure rate of Singapore’s deal sites. It was mentioned in the SBR article that 3 in 4 group buying sites went out of business in the last two years. The surprising fact – 84% of these failed sites had ceased operations in less than 12 months. 19 Singapore deal sites remained as per the date of report and we do not know how many more will go bust in time to come. One of the reasons for the failing business is the lack of capital injection which is necessary for sustaining operations until profits are earned. Co-founder of AllDealsAsia, Goh Yiping said that 100,000 customers is the minimum for a deal site in Singapore to survive. This is assuming 1% of the customer base buy products from your website.
This brings to my point about many have to fail in order for the few to succeed. Nobody knew Karl would have emerged the ‘winner’ with his Beeconomic site, not even Karl knew it himself. This is what makes capitalism beautiful – only the strongest survives and the market will let willing participants fight one another out. The weaker participants will be weeded out of the race and like natural selection, the consumers will choose the best company to serve them. This company has claimed its role in the society and will continue to prosper until the consumers change their preference.
Now let’s bring this perspective to trading. Most traders fail as badly as entrepreneurs. There is an urban legend which says 95% of the traders lose to the top 5%. Whatever the figure is, I believe most traders have to fail for the few to succeed. Yet, there are many trading courses in the market which promise you easy money if you just learn the skills they preach. Most people understand the high failure rate in business but not the high failure rate in trading. If more people can understand the equal chance of failure, I believe there will be less people willing to become a trader. I believe it is equally true that 95% of the traders who attend a trading course would remain unsuccessful as a trader.
I believe most retail investors are better suited to a passive investing strategy and I hope to spread this message to as many people as possible. At times, I would discourage people by showing them how hard it is to become a trader. But maybe it is not a right way to do because a person may have the aptitude and attitude to become a successful one and I would have been the obstacle to his success. In fact, I should not be worried about these purpose driven people as they will find their own way to their success. They will probably ignore my message in totality. What I am concerned about are the retail investors who think trading can help them get rich quick.
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Why do you choose to be a trader? Why do you not want to be an entrepreneur? If you think your success rate is higher as a trader, I urge you to think again.